Macroeconomics plus MyEconLab plus eBook 1-semester Student Access Kit (6th Edition)

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Econ 304 Sonoma State University Spring 2003 Dr. Robert Eyler Lecture #2 Measurement Issues I. Measuring GDP: Three approaches a. Product Approach : Also known as the “Value-Added” Approach a. This is basically the revenuegenerated from the sale of goods, less their cost of intermediate goods. b. The products themselves have value above and beyond the amount of cost of raw materials. c. The cost of labor capital, land and entrepreneurship are considered to be in the “mark-up” or “value-added” d. The sum of all value added in the economy is equal to GDP. b. Expenditures Approach a. The classic way that GDP is measured and the way that we use after this lecture. b. GDP = C + I + G + NX, where NX = EX – IM. c. This is the building blocks of the AE model. c. Income Approach a. Sum of all incomes to economic agents is GDP b. GDP = wages + salaries + taxes + profits + land rents c. Notice the connection to both the other approaches here. d. In general, macroeconomic equilibrium is defined partially by the identity: Y = C + I + G + NX d. The differences between GDP and GNP are simple and large in their implications. 1. The need to investigate GDP comes from an avoidance of double counting and also the belief that countries react to changes in GDP rather than GNP, though they are closely tied. 2. Where is the underground economy? a. Should we start to measure this activity?
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